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Our Take:

Nippon Life India Asset Management Limited (NAM India) is the largest Non-Bank owned asset management company in India with over 25 years of track record and a strong global parentage. The company has well diversified product portfolio and distribution mix. Retail category has always been the key focus area for the company and since last couple of quarters; it has launched several new funds keeping retail and HNI clients in mind. The company has been expanding its offshore advisory and the margin accretive PMS and AIF business where the yields are much higher than normal equity MFs.

Further, online and digital assets have become a key source for investor acquisition and communication. All these along with improved fund performance have resulted in stability from declining market share. The debt segment market share has started picking up after the company’s strategy of not investing in any debt paper below AA long term rating.

The AMC holds leadership position in ETF segment in the industry. It has largest suite of passive products in the Industry with 23 ETFs. Despite unprecedented rise in the influx of mutual funds in last decade, the industry is still underpenetrated. Favorable demographics and changing investment patterns of retail class makes us believe that Indian mutual fund industry has a multiyear growth story lying ahead of them.

Valuation & Recommendation:

We have envisaged a rise of 15.5% CAGR for topline while PAT is expected to grow by 7.6% CAGR over FY21-23E. Operating margin is estimated to grow to 59% in FY23E compared to current 52.5%. Assets Under Management is expected to rise by 14% annually over same time frame. RoE is expected to hover around current level. Market share trend both in equity and debt segment will be the key thing to watch out for. Cash and investments of the company is Rs. 29,106 mn as at FY21 (~11% of the market capitalization).

The company has been constantly paying healthy dividend to its shareholders. We feel that investors can buy NAM India at the LTP of Rs.440 (35xFY23E EPS) and add on dips to Rs.390 (31xFY23E EPS) band for Base case fair value of Rs.478 (38xFY23E EPS) and the Bull case fair value of Rs.505 (40xFY23E EPS) over next 6 months. In terms of Mcap to AUM, NAM India is available at a reasonable valuation (7.9x FY23E P/AUM) as compared to other peers.

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